discounting confirmed standby l/c
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JohanBergamin
- Posts: 2
- Joined: Fri Apr 05, 2019 5:20 pm
discounting confirmed standby l/c
we added our confirmation to a standby l/c that has a validity of 360 days. Drawing documents : statement from bene that applicant has defaulted under a certain contract. Bene asked us to discount immediately upon receipt of the l/c, giving us an undated claim document. I refuse, stating he can not issue such claim when there is still a whole year to run. Client states he consideres the discounted funds as a loan, will repay before l/c expires and if he does not, we can put a date on the claim document and settle under the l/c. I think this may cause us lots of problems if the claim is disputed and the courts find out we merely claimed to cover repayment of a loan. However, many banks seem to provide this service. Do they? Does anybody have any thoughts on this topic?
discounting confirmed standby l/c
This is not a service. It's rather a connivance as the bank knows very well that beneficiary's presigned statement of default is not true.
Rgds
Antoine
Rgds
Antoine
discounting confirmed standby l/c
?????? to say the least
Daniel
Daniel
discounting confirmed standby l/c
This may open the bank up to charges of fraud, money laundering and other problems. We would not do this.
discounting confirmed standby l/c
Johan,
Has the beneficiary made a presentation under your confirmation and requested you to discount the resulting incurred DPU or just asked for a loan secured by its contingent rights under the LC?
If the latter, you should treat the undated default certificate as useless or worse. If the former, then you have to decide whether and on what basis you should refuse, starting, with the lack of a date but perhaps including also consideration of an extraordinary defense based on the apparent evidence that the default statement is arbitrary and therefore abusive.
There has been a fair amount of case law in the US in which bank participation in the presentation of pre-signed default certificates has given rise to an extraordinary defense or post-honor claim against the presenting bank. I don't know that it would matter under US law what practice rules, if any, applied to the undertaking.
Regards, Jim
Has the beneficiary made a presentation under your confirmation and requested you to discount the resulting incurred DPU or just asked for a loan secured by its contingent rights under the LC?
If the latter, you should treat the undated default certificate as useless or worse. If the former, then you have to decide whether and on what basis you should refuse, starting, with the lack of a date but perhaps including also consideration of an extraordinary defense based on the apparent evidence that the default statement is arbitrary and therefore abusive.
There has been a fair amount of case law in the US in which bank participation in the presentation of pre-signed default certificates has given rise to an extraordinary defense or post-honor claim against the presenting bank. I don't know that it would matter under US law what practice rules, if any, applied to the undertaking.
Regards, Jim
discounting confirmed standby l/c
Johan,
Long time no speak. Hope you are well.
Presumably, under Dutch law a demand may only be made under the standby if the beneficiary genuinely believes that the applicant has actually defaulted under the contract. Therefore, your bank simply could not submit the demand unless this were the case and the beneficiary had actually notified your bank of this. Thus, of itself, an undated demand document is useless as it cannot be submitted without this beneficiary notice.
I would also note that the beneficiary would seem to want to indulge in what I would euphemistically describe as ‘questionable business practice’, as it would appear that the beneficiary is happy for demand to be made irrespective of whether or not it believes the applicant has actually defaulted.
Regards, Jeremy
[edited 11/4/2009 9:27:19 AM]
Long time no speak. Hope you are well.
Presumably, under Dutch law a demand may only be made under the standby if the beneficiary genuinely believes that the applicant has actually defaulted under the contract. Therefore, your bank simply could not submit the demand unless this were the case and the beneficiary had actually notified your bank of this. Thus, of itself, an undated demand document is useless as it cannot be submitted without this beneficiary notice.
I would also note that the beneficiary would seem to want to indulge in what I would euphemistically describe as ‘questionable business practice’, as it would appear that the beneficiary is happy for demand to be made irrespective of whether or not it believes the applicant has actually defaulted.
Regards, Jeremy
[edited 11/4/2009 9:27:19 AM]